Regulatory Roundup #7

Weekly Summary

The Bank of England continues to try and prove that you can innovate while still wearing a seatbelt, while the European Commission and regulators resumed their turf war over how to supervise stablecoins. US senators continued to wrestle over market structure legislation, Luxembourg quietly bought Bitcoin, Japan decided insider trading rules should finally apply to crypto, and Kenya made moves towards a full regulatory framework.

🔦 Spotlight

Stablecoins – Creative tensions

Despite the recent sharp volatility in the crypto markets, there has been plenty of regulatory news to digest in the stablecoin space. Stablecoins are now a frontline concern, particularly for UK and European central bankers and politicians. In the last few weeks, a flurry of signals have emerged from the Bank of England and the EU machinery. Two fronts are emerging: the Bank of England’s seeming domestic containment strategy and the EU’s debate over multi-issuance.

Bank of England

Let’s start with Threadneedle Street. In Issue #5 we flagged a previous discussion paper from November 2023 in which the Bank of England proposed limiting how much stablecoin individuals and businesses could hold. At the time, this seemed to go more or less under the radar – finally raising some hackles in mid-2025. However, the numbers were eye-catching: personal holdings of “systemic” stablecoins could be capped between £10,000 and £20,000, while companies might be restricted to holding £10 million. The aim, said the Bank, was to stop privately issued tokens becoming a parallel deposit system until the regulator is satisfied that issuers hold adequate reserves (and would not need a bailout). In other words, treat stablecoins like electronic cash, not a new form of deposit. Since then, following some complaints from industry and, indeed, some apparent backroom political interventions, we seem to be seeing a slight shift in tone from the Bank. Whether that is correlation or causation is unclear.

Governor Andrew Bailey acknowledged that stablecoins could improve the plumbing of the financial system. He told the Financial Times in early October that he is not opposed to stablecoins and sees potential for them to separate money creation from credit provision. Not quite a love letter, but given the UK government is desperate to boost innovation and avoid falling further behind in the race to digitise, it’s a less combative tone. Bailey also signalled that the digital securities sandbox, a test environment for tokenised securities, might permit settlement in stablecoins, which would give issuers a chance to prove their effectiveness in a controlled setting. 

The holding caps proposed in the November 2023 discussion paper are out of step with other significant global jurisdictions. Critics argue that imposing numerical caps on wallets is unprecedented – the existing major stablecoin regimes such as United States GENIUS Act and European Union MiCA impose no such restrictions – and could result in the Bank pushing legitimate activity offshore, where it cannot be as effectively supervised. For business users of stablecoins, such as exchanges and large payment companies, being forced to split holdings across multiple vehicles would also be an operational nightmare.

The BoE appears to have listened to some of the criticism. Reports on 7 October suggested that while personal caps may remain, exchanges and businesses could be exempted. Since then, the Bank has indicated that the proposed caps would be temporary, with Deputy Governor Sarah Breeden telling DC FinTech Week that “We would expect to remove the limits once we see that the transition no longer threatens the provision of finance to the real economy”. She also highlighted the Bank’s concerns that rapid flows out of bank deposits into stablecoins as part of the transition of the financial system might lead to a credit crunch.

Even if the caps are temporary (and that word can mean many different things) and we accept the Bank’s perspective on the risks, there are three other challenges for the BoE, as we see them:

• The first is that the proposed caps, while driven by the Bank’s financial stability mandate (and a desire to avoid the possibility of politically painful bailouts for stablecoin issuers), are likely to harm innovation and the development of homegrown GBP stablecoins, leaving the UK well off the pace in digital finance. Whether you view this as being by design, given the Bank’s work on a Digital Pound, might depend on your view of central bankers more generally. 
• Secondly, geopolitics – inhibiting domestic innovation leaves the door open for the creeping dollarisation of the UK economy via USD-denominated stablecoins, presenting a further challenge for the BoE: if it fails to work with the FCA to create a conducive environment for GBP stablecoin issuers to launch and grow (and indeed become potentially “systemic”), the continuing encroachment of USD stablecoins runs the risk of undermining its monetary policy tools and freedom to act. Caps, however temporary, send a discouraging message to innovators wanting to build the homegrown GBP stablecoin ecosystem.
• Finally, driving UK consumers into the arms of offshore issuers through personal holding caps works contrary to the competition and consumer protection objectives of the FCA. A scenario where the UK population has wide exposure to foreign-issued non-GBP stablecoins that are not able to be supervised in the UK is one that the Bank has far less power to manage. From a domestic politics perspective, a hypothetical bailout of a foreign stablecoin issuer would be far less palatable to the public than the bailout of a domestic issuer. Icesave redux?

The multi-issuance bun fight

EU regulators, at least, seem somewhat alive to the dollarisation risk and aim to supervise the systemic risk directly. It is worth noting that the EU regime for E-Money Tokens (EMTs) and Asset-Referenced Tokens (ART) has been in place well over a year now, yet the market is highly concentrated in USD-denominated EMTs and there are no approved ARTs. However, here too, the tension between innovation, competition and regulatory safeguards is being played out, pitting the European Commission against the EU regulators.

The European Commission has pushed back on the European Central Bank’s call for stricter rules on “multi-issuance” stablecoins (tokens issued outside the EU but circulating within) by saying that the existing Markets in Crypto-Assets (MiCA) regulation already covers the risks. 

Six industry participants, including Circle, previously wrote to the Commission asking for guidance on whether issuers can deploy EU and non-EU tokens interchangeably (somewhat akin to the shared exchange order book issue that arose earlier this year).

The Commission’s view is that MiCA’s licensing, reserve and investor-protection provisions are sufficient; any extra rules would be premature. In addition, the Commission remains supportive of the growth of Euro-denominated stablecoins and conscious of the geopolitics. However, the ECB, led by Christine Lagarde, and the European Systemic Risk Board (ESRB), remain sceptical of multi-issuance.

For its part, the ESRB continues to raise concerns around risks inherent in multi-issuer models and divergent global prudential regulatory frameworks, flagging that it will be publishing a report in the coming weeks. Much like the UK debates, this one should run on (alongside the MiCA supervision debate - see below for more).

🌎 Global Developments 

🇺🇸 United States 

The crypto market structure bill has become Washington’s favourite contact sport again, as Senate Democrats roll out a counterproposal to the Republican-backed framework moving through the Banking and Agriculture Committees. The Democratic version leans heavily toward maintaining SEC primacy, keeping most digital assets within the existing securities perimeter and offering the CFTC only limited authority over spot trading. It is being pitched as a “consumer protection” alternative, but few on the Hill are pretending this is anything less than a turf war.

Republicans are pushing for a more balanced split that would give the CFTC clearer jurisdiction over tokens deemed “non-securities”. They argue that Democrats are clinging to an outdated model that risks driving innovation offshore. Democrats counter that the GOP draft would weaken investor safeguards and hand a lightly resourced CFTC too much responsibility. Staff from both parties have been trading edits, while industry lobbyists count votes and pray for definitions that can actually be parsed without a securities lawyer on retainer.

Details from a leaked Democratic draft have set off alarm bells among DeFi developers and stablecoin issuers. The text reportedly includes a requirement for wallet providers to identify counterparties before processing transactions and empowers the Treasury Department to maintain a “restricted list” of DeFi protocols deemed non-compliant. Critics warn this would effectively outlaw permissionless protocols in the United States, while supporters insist the language is necessary to curb money laundering and sanctions evasion.

Bipartisan staffers are still meeting behind closed doors to merge competing provisions before a committee markup expected later this month. Progress has been slow, with disagreements not only over jurisdiction but also over definitions of “digital commodity” and “ancillary asset”.

Amid the gridlock, the SEC and CFTC have shown signs of closer cooperation. In recent months the agencies have issued joint statements on enforcement priorities, coordinated surveillance of spot markets and begun discussing shared standards for market manipulation. The collaboration has been cautiously welcomed by market participants as a rare point of progress, even if Congress remains deadlocked over who ultimately gets to regulate the industry.

🇪🇺 European Union

🕵 ESMA eyes central supervision

In Issue #5 we covered the call by France’s AMF, Italy’s Consob and Austria’s FMA for the EU to hand direct supervision of the largest crypto-asset service providers to ESMA. That debate has now moved from theory to planning. According to officials cited in Brussels, the European Commission has asked ESMA to detail how such a transfer of powers could be implemented for the largest crypto firms and TradFi exchanges, and what legislative changes would be required. The idea is no longer a thought experiment; it is being sketched into policy.

This would represent a significant expansion of ESMA’s remit, which currently covers credit rating agencies, trade repositories and certain third-country clearing houses. The motivation remains the same: national regulators are applying MiCA unevenly, allowing major exchanges to pick jurisdictions with lighter oversight. ESMA supervision, advocates argue, would close that loophole and create a level playing field for firms operating across the bloc.

Not everyone is convinced. Some member states fear the move would turn ESMA into a de facto European crypto-super-regulator while many larger MiFID investment firms would remain nationally supervised. Others worry about the legislative heavy-lifting required to make such a change by the time the MiCA review begins in 2026. 

🇪🇺 MiCA Authorisations Update (per ESMA CASP Register)

• 🇳🇱 BLOX B.V. — 30/09/2025
• 🇲🇹 Gate Technology Limited — 29/09/2025
• 🇨🇾 COLLECT & EXCHANGE CY LTD — 22/09/2025
• 🇨🇾 Trading 212 Markets Ltd — 22/09/2025
• 🇸🇮 ILIRIKA borzno posredniška hiša d.d. — 20/09/2025
• 🇩🇪 V-Bank AG — 19/09/2025
• 🇫🇮 Bittimaatti Oy — 12/09/2025
• 🇫🇷 FINCTEK UE SAS — 11/09/2025
• 🇲🇹 Socios Europe Services Limited — 10/09/2025

🇱🇺 Luxembourg

₿ Small Country, Big Signal: Luxembourg Buys Bitcoin

Luxembourg’s sovereign wealth fund will buy bitcoin for the first time, making the Grand Duchy one of the few European states to hold digital assets directly on its balance sheet. The Fonds souverain intergénérationnel (FSIL) confirmed that it will allocate around one percent of its €300 million portfolio to bitcoin as part of a broader diversification strategy.

Officials described the move as a measured and forward-looking step that reflects the growing role of digital assets in global markets. The fund, created in 2020 to preserve national wealth for future generations, invests primarily in sustainable and strategic sectors. Its board said the bitcoin position will be managed through regulated channels under the supervision of the CSSF.

The decision follows months of internal review and consultation with the finance ministry. While the FSIL stressed that it is not seeking speculative returns, the purchase nonetheless positions Luxembourg as a quiet outlier in Europe’s largely cautious approach to sovereign crypto exposure.

🇬🇧 United Kingdom

🎟️ Fund tokenization

The UK Financial Conduct Authority has published CP25/28, a consultation paper setting out its proposed framework for tokenised investment funds. The paper builds on the FCA’s earlier work with the Technology Working Group and its “fund tokenisation blueprint”, moving from concept to regulatory plumbing. It proposes amending the Collective Investment Schemes Sourcebook (COLL) to allow authorised fund managers to issue and redeem units as digital tokens recorded on distributed ledger technology.

The FCA is keeping the model conservative. Only the “base” form of tokenization would be permitted initially, meaning blockchain is used solely for recording and administration rather than trading or settlement. Fund managers would still need to maintain a traditional depository structure and comply with existing reporting, valuation and custody requirements. The regulator wants to see whether tokenisation genuinely delivers operational efficiency before expanding into more ambitious use cases.

The consultation also explores how blockchain-based fund records would interact with existing record-keeping obligations, and whether distributed ledgers could meet standards for accuracy, reconciliation and data retention. The FCA is not yet opening the door to secondary market trading or fully on-chain fund operations, but it is signalling that these may follow if the early implementations prove sound. Responses to CP25/28 are due by 27 January 2026.

🇰🇪 Kenya

⚖️ Regulatory framework

Kenya’s parliament has approved the Virtual Asset Service Providers Bill, setting the stage for the country’s first comprehensive regulatory framework for digital assets. The legislation, which passed its third reading this week, introduces licensing and supervision of exchanges, wallet providers and token issuers under the Capital Markets Authority. It also imposes new tax reporting obligations and anti-money laundering requirements in line with FATF standards.

The Bill gives the regulator powers to vet crypto firms for financial soundness and governance, with a particular focus on protecting retail investors from fraud and volatility. It also establishes rules for token issuance, requiring disclosure of project details and risk factors before public offerings. Stablecoins and cross-border transfers are explicitly covered, marking a notable expansion from Kenya’s previous patchwork approach.

The move puts Kenya ahead of most of its regional peers, joining Nigeria and South Africa in formalising crypto oversight. Lawmakers framed the bill as a step toward responsible innovation and regional competitiveness, though local exchanges have warned that compliance costs could be steep. Implementation guidance from the Capital Markets Authority is expected later this year.

🇯🇵 Japan

🚨 Crypto insider trading clampdown

Japan’s Financial Services Agency (FSA) plans to ban insider trading in cryptocurrencies, extending market abuse rules that until now have applied only to traditional securities. The reform will make it illegal to trade on non-public information likely to affect token prices, including exchange listings, large-scale project announcements and token issuance plans known only to insiders.

Under the proposal, penalties will be linked to the scale of illicit gains, similar to insider trading rules for equities. The FSA also intends to require exchanges to introduce stronger monitoring systems and report suspicious transactions to authorities in real time. A new coordination framework between exchanges, the FSA and the Japan Virtual and Crypto Assets Exchange Association (JVCEA) will formalise these obligations.

The initiative follows several investigations into listing-related trading and comes amid a wider FSA push to align crypto market conduct rules with those governing conventional finance. Legislation is expected to be introduced during the 2026 ordinary Diet session. Policymakers say the goal is not to dampen innovation, but to close loopholes before crypto market integrity issues become systemic.

🔎 Things to Watch 

• 🇺🇸 US Senate progress/bickering on market structure regulation.
• 🇬🇧 FCA CP25/25 - response deadlines - 15 October and 12 November.
• 🇦🇺 Australian Digital Asset Platform Regulation Bill - response deadline - 24 October

Coming into view: 

• OECD Crypto-Asset Reporting Framework (CARF) implementation timeline across EU and G20 nations ahead of 2026 start

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